PhonePe Partnership And Increased Premiums Will Expand Future Market Reach In India's Insurance Sector

Key Takeaways

• Strategic partnerships and digital initiatives aim to enhance market penetration, driving long-term revenue growth in emerging markets.
  
• Improved underwriting practices and premium strengthening are expected to boost net margins and operational performance.
  
• Weaker equity markets and high underwriting losses challenge profitability, while low insurance penetration and pricing pressures indicate both potential and risks.

Catalysts

Operates as a general insurance company in India and internationally.

• The renewal of the Rajasthan Government Health Scheme with a 20% increase in per family premium indicates disciplined pricing and could drive future revenue growth while aligning with profitability goals.
  
• Strategic focus on disciplined underwriting and profitable practices aims to reduce underwriting losses, potentially improving net margins and earnings.
  
• Partnership with super-app platforms like PhonePe and new digital initiatives indicate a strategy to enhance market penetration, which can drive revenue growth in the retail segment.
  
• Market trends show increased awareness and demand for insurance, suggesting a large untapped market potential, which could result in long-term revenue growth as penetration improves.
  
• Anticipated premium strengthening in the property insurance segment and improvements in claims management are expected to contribute to operational performance, enhancing net margins and earnings.

New India Assurance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New India Assurance's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 4.1% in 3 years time.
• Analysts expect earnings to reach ₹21.1 billion (and earnings per share of ₹12.84) by about May 2028, up from ₹9.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, down from 28.7x today. This future PE is lower than the current PE for the IN Insurance industry at 71.8x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

New India Assurance Future Earnings Per Share Growth

Risks

• Weaker equity market conditions have reduced investment income, which is a significant source of profit for the company. This could continue to impact net earnings if equity markets do not improve.
  
• The company's underwriting losses remain high, which could impact net margins if not improved through risk management strategies.
  
• Despite market leadership, general insurance penetration in India remains low at around 1%, indicating significant untapped potential but also challenges in expanding revenue.
  
• Increased claims ratios in the Motor Third Party (TP) segment, due to non-revised premiums and court judgments increasing liabilities, could strain profitability unless pricing is adjusted.
  
• Competitive intensity in both retail and group health segments poses a risk, necessitating disciplined pricing strategies to maintain profit margins, which could be challenging if pressure on pricing continues.

Valuation

• The analysts have a consensus price target of ₹210.0 for New India Assurance based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹240.0, and the most bearish reporting a price target of just ₹180.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹509.5 billion, earnings will come to ₹21.1 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹172.07, the analyst price target of ₹210.0 is 18.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.